Biti’s potential time bomb

A TRILOGY of statements made by the Minister of Finance, Tendai Biti, in his presentation of the 2010 Mid-term Fiscal Policy Review (MFPR) touched on critical human capital issues that have an impact on economic recovery. 

Statement 248 of the MFPR reminds us that “the brain drain experienced during the last decade continues to affect implementation of various projects and programmes as well as operations of the productive sectors”. Statement 249 plots the vector the Minister of Finance thinks the nation should follow by suggesting that “Strategies for training, retaining and attracting skilled personnel will be essential in capacitating both the public and private sectors”. The last statement is merely aspirational. It is sad to note that the third statement of the trilogy may render the noble intentions embodied in statement 249 academic.

Statement 372 unpacks the cabinet position that “in line with Cabinet guidelines over the deployment of adequate revenue collections towards service delivery and development, public entities including local authorities will be required to observe the 30:70 ratio”.

This 30:70 ruling is the wage/revenue ratio. Simply put, for every dollar of revenue collected by public entities such as the Bulawayo City Council and Zimbabwe Electricity Distribution Company, for instance, no more than 30 cents should be paid as salaries. This intervention is calculated to increase levels of service delivery.

Ultimately service delivery charges will have to significantly drop. The break-even model, which is simply fixed costs divided by the difference between revenue and variable costs will demand a fall in service charges. If Statement 371 is true then, currently the bulk of fixed costs are coming from salaries. Applying this model, a drop from a wage/revenue ratio of 70:30 to 30:70 should see service charges drop by at least 35%. A combination of cheaper and improved service delivery is an exciting prospect. The immense contribution in lowering production costs will definitely decelerate inflation, Biti’s Key Result Area.

It is my contention that if this wage/revenue ratio is rigidly applied, short-term service delivery may be achieved but over medium to long horizons we may experience serious deterioration of service delivery. We are staring in the face of two laws, one from economics and the other from organisational behaviour. We break them at our own peril as they take no prisoners. The price of scarce skills is governed by the law of demand and supply, which in simple terms states that the scarcer the resource the higher the market clearing price. This law conspires with the law recently restated by a well known HR think tank which,boldly, in the form of an equation  reads:
 Talent = competence x commitment x contribution.

It should be noted that the talent equation is multiplicative. For instance zero commitment will result in zero talent even if a person is highly competent and contributing. Put differently, brilliant skills cannot compensate for lack of commitment (consistent and predictable application of skills and knowledge) and contribution (purpose and meaning derived from work). Here is where the 30:70 ruling might backfire. A competitive salary is a key driver of commitment, though not the sole driver.

The 30:70 benchmark is regarded as best practice in the not-for-profit sector to ensure that the bulk of the resources are directed towards programmes and activities, the core business of not-for-profit sectors. What this means is that those not-for-profits with bigger grants are more likely to have the budgets to offer better salaries and rewards. There is high mobility of exceptional talent from low paying to high paying not-for-profits. Unfortunately, for the state-owned enterprises and other public bodies, flight of talent will be to the recovering private sector and not-for-profits inside and outside Zimbabwe. Gut feeling tells me “cabinet” might have borrowed this idea from the not-for-profits. Caution is called for.

Let me share with you a tale. Recently, concern was raised in parliament (not Zimbabwe) as to why a certain key parastatal was losing key personnel. Consultants were engaged to help answer this question as part of a broad strategic reward management consultancy project. I was privileged to be one of the leading consultants on this project. We discovered an interesting pattern. Personnel who were leaving the parastatal were from the traditionally scarce skills job families specifically, engineering and accounting.  They were leaving for the private sector where their skills were in high demand owing to large-scale infrastructural development projects boom.

 Comparing different grades of engineering and accounting jobs between the parastatal and the national market showed serious if not ‘embarrassing’ gaps. The parastatal had tried introducing an attractive scarce skills allowance to stop the skills bleeding. Faced with facts showing that even with the introduction of the scarce skills allowance the salary gap barely closed, the parastatal’s executives were ready to begin to appreciate the scale of the problem they were facing. Here is how this war story ties with our situation. Salaries of parastatal employees in that country are subject to very strict rules. Due to these strict rules we found out certain key personnel were being remunerated at levels twice below equivalent positions in comparable markets. To reverse the skills blood-letting policy changes are required at government level.

If the 30:70 ruling works like the laws of the Medes and the Persians we will experience the ‘third wave’ of brain drain, albeit from parastatals and other public bodies. Scarce skills such as engineers, artisans and competent administrators will not be attracted to parastatals and the few remaining might leave.  Service delivery and astute management of public enterprises will be severely compromised. I also foresee a situation where state-enterprises may fail to attract highly competent board members due to lack of capacity to provide competitive sitting allowances. If the “third wave” does happen the law of demand and supply will force government to allow state-owned enterprises to offer salaries above the market to recapitalise their human capacity. 
Drained of exceptional technical, executive and board talent our state enterprises risk being run by mediocre personnel. With unattractive salaries we will see more of the NRZ syndrome where employees are allegedly forming companies that supply services to the parastatal in violation of tender protocols and basic corporate governance norms.

I am not rubbishing the 30:70 ruling. It is the duty of strategic HR to advise policy makers.   The latest and largest global research on HR professionals is startling in so far as reward management is concerned. HR professionals in Latin America, the US, Europe, China and India where the sample of over 10 000 respondents was drawn think that reward management is an administrative issue. In contrast non-HR professional associates in the same global survey see reward management as a strategic issue. ominated by lawyers and financial experts. My plea with the policy makers is that the ‘cabinet guidelines’ be treated as white lines rather than rail lines, to allow flexibility. A rigid 30:70 ruling resulting in the violation of time-honoured laws of demand-supply and talent will give us neither talent nor service delivery.
Should the 30:70 wage/ratio be rigidly applied? Let’s share at brettchulu@consultant.com.

By Brett Chulu

 

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